The Department of Labor (DOL) has provided new insight into its interpretation of the so-called “salary basis” test, which must be met in order for an employee to qualify as exempt from the overtime pay requirements of the Fair Labor Standards Act.
In two recently released opinion letters, the department’s Wage and Hour Division (WHD) opined that:
1. deductions made from an exempt employee’s salary for damage inflicted to company-provided work equipment, such as cellular phones and laptop computers, would result in the loss of exempt status for that employee, while
2. disciplining an employee for not working a pre-determined amount of hours per week and requiring them to make up work time lost due to absences of less than a day would not result in the loss of exempt status.
While the DOL’s opinion letters do not carry the force of binding law, they do help employers in that they reveal the DOL’s likely strategy in enforcing the wage and hour requirements and, in this case, a WHD investigator’s likely reaction to an employer’s rules and practices regarding salaried exempt employees.
Both opinion letters focused on the salary basis test, the satisfaction of which is a prerequisite for qualification for most of the exemptions under the act. In order to satisfy the salary basis test, an employee must be paid a salary at the rate of at least $455 per week. However, the regulations to the act provide that even if the employee is paid at a rate of at least $455 per week, he or she will nevertheless be considered non-exempt unless the pre-determined amount which he or she is paid is “not subject to reduction because of variations in the quality or quantity of the work performed.” The regulations go on to specify that unless a deduction from salary is taken for one of the specific reasons listed in the regulations, an employer cannot make deductions from an exempt employee’s salary, but must pay the exempt employee “the full salary for any week in which the employee performs any work.”
The first opinion letter addressed an employer’s proposed policy of requiring exempt employees who damage company-provided equipment used on the job to reimburse the company for the cost of the damage, either through deductions from the employee’s salary or through out-of-pocket payment to the employer. The DOL declared that such a practice would violate the salary basis test and result in the loss of exemption from the act for employees to whom the rule was applied. The DOL explained its position by pointing out that such deductions were not among those explicitly listed in the regulations as permissible deductions from an exempt employee’s salary, and stating the WHD’s strict interpretation of the act’s regulations “to mean that if a particular type of deduction is not specifically listed in [29 C.F.R.] section 541.602(b), then that deduction would result in a violation of the salary basis rule.” In the WHD’s opinion, deductions for damage to equipment, whether taken directly from an employee’s salary or collected through out-of-pocket payment, would be impermissible because they would “violate the regulation’s prohibition against reductions in compensation due to the quality of the work performed by the employee.” The letter compared deductions for damage to work equipment to other types of deductions that the DOL previously has considered to be impermissible, specifically referencing deductions for cash register shortages and deductions for charges incurred due to an employee’s unauthorized use of a company phone.
The opinion letter also clarified that the deductions in question could not be taken from any employee’s pay -- whether exempt or non-exempt -- if doing so would result in the employee being paid at a rate less than the minimum wage set by the act or in the employee receiving less than the amount of overtime pay to which he or she was entitled under the act.
The second opinion letter addressed two proposed rules to be implemented by an employer simultaneously for its exempt employees. The first rule provided that all employees were required to work either 45 or 50 hours a week, depending on whether or not the employee was also an officer of the company. The second rule provided that employees must make up work time lost due to personal absences of less than one day. Importantly, the employer clarified that violation of either of these rules would not result in the docking of the salary of any exempt employee, but rather that consistent failure to meet the rules’ requirements would be addressed with “discipline up to and including discharge.”
The WHD opined that since the employer would not be making deductions from the salary of any exempt employee, but rather imposing other forms of discipline for violations, the rules would not run afoul of the salary basis test. According to the letter, “[t]he number of hours worked by an employee who is exempt under [the act] is a matter to be determined between the employer and the employee. An employer may require an exempt employee to make up work time lost due to personal absences of less than a day without loss of the exemption.” However, the letter went on to clarify that the “discipline” imposed by the employer could not involve any deductions from exempt employees’ pay. The WHD stated that it would not consider either of the proposed rules to be a “workplace conduct rule” for which the regulations provide that an employer can impose a disciplinary suspension of one or more full days, and then deduct from the employee’s salary for the time lost due to the suspension. Because “workplace conduct rules” must relate to an employee’s conduct, and not performance or attendance issues, the proposed rules would not be the type for which, when violated, an employer could suspend the employee and dock his or her pay during the suspension.
The texts of these and other opinion letters issued by the Administrator of the WHD are available on the Department of Labor’s website at www.dol.gov/esa/whd/opinion/flsa.htm.
For further information on this or other legal issues, call or email your regular contact at Calfee or contact: John Cernelich at 216.622.8251, jcernelich@calfee.com; Eric Baisden at 614.621.7752, ebaisden@calfee.com; or Laura Kendall at 216.622.8847, lkendall@calfee.com.
